Entering The WTO

To the disappointment of many, the visit to Washington by China’s Premier Zhu Rongji failed to produce a deal for China’s WTO accession. The rumor on the street is that U.S. Trade Representative Charlene Barshefsky was largely satisfied with the most recent offer put forward by China but that President Clinton was too fearful of a Congressional backlash in light of recent espionage and technology transfer scandals.

Despite apparently doing so for the wrong reasons, President Clinton was right to announce that a deal was close but not yet finalized. It is too curious that more progress on China’s WTO accession has been made in the past two months than the past six years. The apparent reason for the sudden breakthrough is that Zhu Rongji, took a leading role on this issue and committed China to a wide-ranging package of economic reforms in telecommunications, financial services, and agriculture.

While the U.S. business community is broadly in favor of China’s entry into the WTO on commercially viable terms, it has good reason to view the current Chinese offer with skepticism. That Premier Zhu made these reform promises just weeks before his arrival to the United States on April 8 can hardly be a coincidence. The sudden and timely breakthrough in the negotiations raise serious questions about whether or not the United States has evaluated sufficiently the degree to which Zhu’s commitments on opening up China’s economy are credible.

Unfortunately, the first year of Zhu’s tenure as Premier, a position he was promoted to in March 1998, does not give much cause for optimism. To his credit, Zhu has followed a prudent macroeconomic policy, resisting pressures from domestic exporters to devalue the yuan. Zhu’s track record on restructuring the economy, however, is less impressive. A year ago when promoted to Premier, for example, he announced that he would restructure China’s ailing state-owned enterprises (SOEs) in three years—a goal he now admits he will not achieve. The initial government plan was to auction off small SOEs under a policy of “Seize the Big and Release the Small.” Fixated on achieving target growth rates, however, China is backtracking from this policy and is increasing its investment in even smaller and medium-sized enterprises.

This is not to fault Zhu personally for failing to restructure the economy despite his recent public proclamation that he was to blame. The problem is that Zhu must persuade reluctant local officials to implement his directives. Since 1978, the Chinese government has delegated a great deal of authority to local officials not only to enforce but to design reform institutions and policies. Not surprisingly, many local officials are adopting policies that benefit themselves and their localities with little consideration of the national interest in mind. Zhu himself has admitted that “the resistance to the principles, policies, and measures of the central authorities is not weak, which makes it very difficult to implement them. Some party and government chiefs do not feel obliged to listen to the central authorities.”

Zhu will have a hard time, for example, in following through on his promise to lift informal “buy local” orders on telecommunications equipment in China. China has already outlawed the establishment of protectionist barriers between China’s provinces but many are still in place. Zhu will also have to contend with powerful central ministries that are reluctant to allow foreign access. It is widely known, for example, that the Minister of Post and Telecommunications, Wu Jiachuan, is against increased foreign participation in China’s fledgling telecommunications market. Apparently Minister Wu is not alone, with one recent anonymous article published in a dissident magazine quoting a senior official saying: “Only the trade ministry wants to join the WTO. The rest of us are against it.”

The United States is right to welcome China’s recent reform package put on the table by Premier Zhu and his colleagues, which to some extent justifies the back-patting we saw during Premier Zhu’s upcoming visit. In the months that follow, however, it will be crucial for the world trading community to get in writing not only the commitments on market access that China will make, but on the processes that China will adopt to implement the accession agreement.

Particularly since of most of the economic reforms that China has pledged to adopt do not have to be phased in until 2005, such a written commitment on the processes China will follow to achieve true market access for foreign companies is crucial. Indeed, it is the only way to dispel the other rumor floating around Washington now—that the present breakthrough on China’s WTO accession, while not yet final, still smacks too much of political opportunism by leaders on both sides of the Pacific.

Mark A. Groombridge is associate director of Asian studies at the American Enterprise Institute. He and his colleague Claude Barfield are the authors of Tiger by the Tail: China and the WTO, forthcoming, The AEI Press.

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